OTTAWA, Sep 9 (Reuters) – The Canadian economy is nearing the point where the Bank of Canada no longer needs to stimulate the economy through its quantitative easing (QE) program, but it’s not there yet, Governor Das said Tiff Macklem on Thursday.
Also for the first time, in a speech the day after the central bank kept its policy rate at 0.25%, Macklem said that if the Bank of Canada cuts incentives, it will do so by raising rates before it does cuts its holdings of government bonds.
“As the recovery progresses, we are approaching a point in time when further impulses from QE are no longer necessary. We’re not there yet, ”said Macklem.
“Eventually, when we need to reduce the amount of monetary stimulus, you can expect us to raise our key interest rate first,” he added in a webcast to a Quebec group of companies.
Macklem said the first step, once new incentives are no longer required, would be to move to a reinvestment phase of the QE program, during which the central bank will only buy enough bonds to replace those that mature – about $ 1 billion ( 791 USD). Million) per week. This would maintain the stimulus but would not add a new stimulus.
That would mean that the reinvestment phase could begin as early as next month if the Bank of Canada increases its weekly bond purchases from the current target of CAD 2 billion as part of its interest rate decision in October, as expected, to CHF 1 billion.
Macklem made it clear, however, that relocating for reinvestment would depend on economic development.
“Let me emphasize when and how long we are in the reinvestment phase are monetary policy decisions that depend on the strength of the recovery and the development of inflation,” he said.
“We are now in the fourth (COVID-19) wave. That could put a strain on the recovery and our outlook, ”Macklem said later when answering questions from the audience.
Macklem previously noted that many of Canada’s hardest hit sectors began to rebound in the summer, but the recovery is still bumpy and uncertainty persists.
He pointed to rising COVID-19 cases and supply chain disruptions as risks to the global recovery that also weighed on Canada’s economic performance.
“We expect these global supply chain issues to be resolved gradually, but it could take some time,” he said.
The Canadian dollar was trading 0.5% higher at 1.2625 versus the greenback, or 79.21 US cents.
($ 1 = 1.2638 Canadian dollars)
Additional reporting by Fergal Smith in Toronto. Editing by David Gregorio and Paul Simao
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